Capital Letter: Top UK court emphasises fairness has no part to play in reversing unjust enrichments

A UK Supreme Court judgment may have echoes here as lawyers mull its ruling on unjust enrichment.

Unjust enrichment is a legal concept referring to situations in which one person is enriched at the expense of another in circumstances the law treats as unjust. Where an individual is unjustly enriched, the recipient is to make restitution.

New Zealand courts have long looked askance at claims of unjust enrichment, doubting such claims constituted causes of action in their own right as in Real Cool Holdings Ltd v Northpower Ltd and conscious of “the perils that might be thought inherent” in their reliance on perceptions of what was ‘just’ between the parties (Marlborough District Council v Altimarloch Joint Venture).

Equitable remedies – typically, of constructive trusts, restitution or subrogation – may be sought to reverse unjust enrichment. Unjust enrichment’s elements are accepted as (a) the defendant’s enrichment, (b) at the plaintiff’s expense, and (c) which enrichment is unjust. 

Beyond that, controversy reigns – in particular, what is meant by ‘enrichment’ (objectively or subjectively?), by ‘expense’ (directly or indirectly?), and by ‘unjust’ (unintended or unconscionable?). 

University of Auckland Professor Peter Watts, QC, decries reliance on unjust enrichment as “the potion that induces well-meaning sloppiness of thought” (to borrow British Court of Appeal Justice Thomas Scrutton’s 1920s criticism of unjust enrichment’s foundation in the 1760 case Moses v Macferlan).

Similar concerns animate last month’s UK Supreme Court judgment, Commissioners of HMRC v The Investment Trust Companies in which end-customers sought unsuccessfully to recover VAT they were mistakenly charged, which had been paid on to the Revenue by their suppliers. 

Given unjust enrichment’s “vague and generalised language,” the court accepted “a responsibility to establish more precise criteria.” Lord Reed emphasised “unjust enrichment ranks next to contract and tort as part of the law of obligations;” seen as a modern novelty was to disregard “centuries’ worth of relevant authorities. The courts should not be reinventing the wheel.” Precedent matters.

While unjust enrichment’s elements provided a structured approach for analysis, with less risk of uncertainty and unpredictability, those elements were not legal tests.  Instead, courts are to have regard for the law of unjust enrichment’s purpose: “to correct normatively defective transfers of value, usually by restoring the parties to their pre-transfer positions.  It reflects an Aristotelian conception of justice as the restoration of a balance or equilibrium, which has been disrupted.  That is why restitution is usually the appropriate remedy.”

More precisely articulated, the legal test is the defendant has received a benefit from the plaintiff, which provision is to the plaintiff’s loss. Receipt of benefit alone is insufficient. And echoing Justice Andrew Tipping’s concern in Altimarloch, the qualifying ‘loss’ is not to be confused with damages law (or necessarily to reflect commercial or economic realities). The purpose of restitution is not to extract compensation for providing benefits or incurring loss but to reverse the defective transfer. Hence, ‘unjust’ “does not create a judicial licence to meet the perceived requirements of fairness on a case-by-case basis.”